--Rob McGlinchey
PRAGUE -- The European Securities and Markets Authority will determine which derivatives entered into before clearing was required will be forced into the regime and required to post margin, according to the latest European Council paper seen by Derivatives Week. The paper, which also goes further than recent proposals from the European Parliament and European Commission in enhancing ESMAs powers, confirms industry fears that lawmakers will enforce what is known as frontloading. Under the terms of the paper, frontloading refers to the submittal of clearing or clearing-eligible derivative contracts entered into before a clearing obligation comes into force.
“If this requirement is enforced you are talking about firms having to post margin on trades that they have done before this requirement...with the other question remaining on what maturities this rule will apply to,” said one official at the International Swaps and Derivatives Association’s annual general meeting here yesterday. According to the EC, ESMA will be responsible for drafting technical standards for the “minimum remaining maturity of the derivative contracts pertaining to a class to be frontloaded.”
ESMA will also have the power to seal off record books and business premises of trade repositories, call on the police of a member state to enforce an on-site inspection, require national regulators to carry on-site inspections of trade repositories, call on the assistance of an enforcement authority if a firm doesn’t comply with an inspection, and also apply for a warrant if required, even as a precautionary measure. One lawyer in London told DW that, if ESMA is granted the new powers, there would be no reason why such powers couldn’t be expanded to include other firms apart from trade repositories.
The EC has also specified how fines will be applied to a trade repository, should it deliberately fall foul of regulation. Fines will range from EUR2,500 to EUR10,000, depending on the seriousness, frequency and duration of the infringement. Like current legislative proposals for credit rating agencies, trade repositories will be charged with fees related to the registration and supervision by ESMA of those firms. Specifics will be adopted by the Commission at a later date.
Further amendments to the Commission’s legislative proposal from the Council are expected later this year from the Polish administration, which takes over the E.U. presidency from Hungary in the next few months, before legislation is passed.
